In what is likely to become a trend around the country, California's Public Employees Retirement System just watched $69 billion go up in smoke as the coronavirus panic has gripped global markets.
CALPERS total fund balance is now about $335 billion, down from a record high of $404 billion only one month ago. CALPERS administers pensions for about 1,500 local governments around the state, as well as California state employees, according to the Sacramento Bee.
The California State Teachers’ Retirement System doesn't publicly report its value as often, but likely suffered similar losses. As of the end of February, its balance was about $243 billion. If it were to have fallen by the same amount as CALPERS, it would likely be somewhere near $200 billion now.
The losses stand to have a profound impact on California, as cities, counties and schools will have to pay CALPERS more in upcoming years to make up for the losses. This will, in turn, put pressure on state and local government to raise their already astronomical taxes even higher.
Many public workers hired since 2013 may have to contribute a larger slice of their paychecks to their retirement plans. In July, more of the extent of the damage to CALPERS will become clear. Higher payments won't go into effect until Summer 2021, when they will be implemented over the course of 5 years.
Any return rate of less than 7.25% will trigger higher payments for local governments and school districts. CALPERS earned 6.7% last year. The S&P is now down about 31% this year.
California, like many pensions across the U.S., is now going to pay the price for going "all in" on the market while it was at all time highs. Dane Hutchings, a lobbyist with Renne Public Policy Group said: “A one-year downturn in the market is going to have significant effects for a decade. They’re still reeling from the Great Recession.”
CEO Marcie Frost said Friday that the fund was better situated to handle a downturn than it was 10 years ago: “It’s not that we didn’t expect it, although it does seem a little unprecedented in the market. We were planning for a market downturn or correction in the market for the last couple years.”
And hey, don't worry - like everyone else, they've been indoctrinated to believe that all things in the market will work themselves out over time if you just buy and hold long enough.
Frost concluded: “The strength of CalPERS is that we’re a long term horizon investor. And hopefully that will serve us well … we’ll take conservative and appropriate options if we find opportunities in the market. Staying with our long-term investment plan is really the most important part of the equation right now.”
The S&P today gave back all of its gains since Donald Trump became president. Good luck with that, Marcie.